VAT

Rates

The positive rates of VAT are unchanged, so the standard rate remains at 20% and the reduced rate at 5%.

Changes to VAT registration and deregistration thresholds

The taxable turnover threshold, which requires a person to register for VAT, will be increased from £82,000 to £83,000 per annum.

The threshold below which a VAT-registered person may apply to deregister will be increased from £80,000 to £81,000 per annum, and the relevant registration and deregistration threshold for intra-Community acquisitions will also be increased from £82,000 to £83,000 per annum.

All these changes will take effect from 1 April 2016 and will prevent around 2,000 businesses from having to register in the financial year 2016 to 2017.

The changes will also raise the turnover limit for income tax self-assessment ‘3 line accounts' and increase the entry and exit thresholds for the income tax cash basis accounting, so that they are aligned with the new VAT registration threshold.

Overseas businesses and online marketplaces

Changes are to be introduced to give HMRC greater powers to tackle non-compliance on the part of overseas businesses that avoid paying VAT on sales made to UK consumers through online marketplaces.

There will be 2 aspects to the changes, which HMRC will not automatically apply, but use only to tackle the highest risk compliance cases.

The first change will strengthen HMRC's powers to direct overseas businesses to appoint a VAT representative, including the power to insist that the representative is in the UK. It will also provide greater flexibility as regards seeking security.

The second change will enable HMRC to make online marketplaces jointly and severally liable for any VAT unpaid by the overseas business on goods sold in the UK through the online marketplace's website.

Both of these changes will be effective from royal assent to Finance Bill 2016.

Electronic communications services

This measure introduced a VAT reverse charge in the UK, designed to tackle Missing Trader Intra Community (MTIC) fraud. It was not a Budget measure as such, as it was announced on 11 January 2016 and introduced by Treasury Order on 1 February 2016.

Those perpetrating MTIC fraud charge and collect VAT on their supplies but then ‘disappear' without paying over the VAT to the Exchequer. The introduction of a reverse charge means the business customer must now account for the VAT due, rather than the supplier.

VAT fraud

The government will consult on a new penalty for participating in VAT fraud in spring 2016. Subject to the consultation, the intention is to legislate in Finance Bill 2017.

The new measure only applies to wholesale services of routing telephone calls and associated data such as texts and images over landlines, mobile networks or the internet. It does not affect consumption supplies.

Fulfilment house due diligence scheme

The government has introduced a consultation on the ‘fit and proper' standards that fulfilment houses will need to meet for them to be able to operate.

They will have to register and maintain accurate records once online registration begins in 2018. They will also have to provide evidence of the due diligence they have undertaken to ensure overseas clients are following VAT rules.

The purpose is ultimately to minimise any costs for legitimate businesses.

International solutions to VAT fraud

The government plans ongoing discussions with the EU and OECD with the objective of finding better solutions to international VAT fraud, including different mechanisms for collecting VAT.

Museums and galleries

The Department for Culture, Media and Sport has published guidance on new criteria to broaden eligibility for VAT refunds and thus provide greater support for museums and galleries in the UK.

VAT refunds for shared services

The government plans to introduce legislation to enable named non-departmental and similar bodies to claim a VAT refund on shared service arrangements used to support their non-business activities.

VAT reliefs for Isle of Man charities

Legislation is to be introduced to enable charities subject to the jurisdiction of the High Court of the Isle of Man to receive all the VAT benefits available under UK law.